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Can Synaptics Bounce Back?

There might be more room in the touchscreen market than today's Synaptics bears would believe.

There's a changing of the guard taking place in the market for touch controllers. Is it a foregone conclusion or just a temporary speed bump for the incumbent?

The market reaction to last night's earnings report from Synaptics(Nasdaq: SYNA) seems to point to the former, more transformative option. Shares fell nearly 12% in early trading as the company's core market in notebook touchpads suddenly lost its pulse. Though increased sales to smartphone accounts made up for the notebook shortfall, the sudden lack of demand for a product line that traditionally makes up more than half of Synaptics' sales is troubling indeed.

Some of the blame for that should fall on Apple(Nasdaq: AAPL), which is a Synaptics customer for many of its Macbook touch controller needs but also undermines that market with the pad-less iPad (funny how that works). Rivals Cypress Semiconductor(Nasdaq: CY) and Atmel(Nasdaq: ATML)are dominating touchscreen accounts with a healthy side of Texas Instruments(NYSE: TXN) controllers, leaving little opportunity for Synaptics in that segment.

With that said, it's not all doom and gloom for Synaptics. The company more than measured up to analyst expectations on both the top and bottom lines, buoyed by the sliver of the mobile market that it's managed to capture. There might even be more room left to maneuver.

The trick to making this stock bounce back now lies in continued touchscreen gains. That's easier said than done when you consider the caliber of the competition, but then again shares of Atmel, Cypress, and Synaptics are priced as if Synaptics has already lost the war, died, and had its ashes strewn over Silicon Valley.

Do you see Synaptics drowning in insurmountable competition or rising to the challenge to earn fatter valuation multiples? Our CAPS community believes in a phoenix rising from the ashes of this five-star stock. Add your two cents to the discussion in the comments below.